The US recording industry is celebrating after a company which let its employees swap music on an internal computer network agreed to pay it $1m in damages.

Arizona-based technology outfit Integrated Information Systems (IIS) ran a computer server which allowed its staff to access and swap MP3 music files over the company's network.

The company paid the Recording Industry Association of America (RIAA) - which represents major music groups such as Warner, BMG and Sony - $1m rather than face court action.

Ricky Martin songs were also on the server

The RIAA's senior vice-president for business and legal affairs, Matt Oppenheim, said it was "a clear message that there are consequences if companies allow their resources to further copyright infringement".

He added: "We applaud IIS for accepting its responsibility and working actively with us to settle this case out of court."

The RIAA had been tipped off about the server by an e-mail sent to it in the summer of 2001, and started discussions with IIS about a settlement in August.

Ironically, one of IIS's areas of expertise is in secure distribution of copyrighted material.

RIAA director of anti-piracy Frank Vreighton said: "We hope this discourages other companies from similar activities and serves to remind the public of their important role in helping us to combat music piracy."

Files being swapped at IIS included tracks by the Police, Aerosmith, Ricky Martin and Sarah McLachlan.